This matter comes before the Commission on stipulated
facts. Both parties have submitted briefs in support of their
position. Petitioners represent themselves. Attorney Robert C.
Stellick, Jr., represents respondent.

FINDINGS OF FACT

The Commission adopts the following facts based on the
facts and exhibits stipulated by the parties:

Mr. Hansis' Service History

1. Petitioner Alan Hansis became a member of the
Milwaukee Teachers Retirement System ("MTRS") in 1961.

2. Mr. Hansis requested withdrawal of, and was
subsequently paid, his entire monetary contributions to the MTRS in
1966. The withdrawal application signed by Mr. Hansis stated that
payments by the MTRS "shall constitute a full and complete
discharge and release of all right, interest or claim on my part to
state deposit accumulations which accrued while a member of said
FUND."

3. Mr. Hansis became a member of the State Teachers
Retirement System ("STRS") in 1966.

4. In 1995, Mr. Hansis purchased 6 years of forfeited
MTRS service.

5. In 1998, pursuant to the Wisconsin Court of Appeals
decision in Benson v. Gates, 188 Wis. 2d 389 (Ct. App. 1994), the
Department of Employe Trust Funds ("DETF") added the 6 years of
forfeited MTRS service to Mr. Hansis' total creditable service.

Mrs. Hansis' Service History

6. Petitioner Carol Hansis first became a member of the
MTRS in 1960.

7. Mrs. Hansis requested withdrawal of, and was
subsequently paid, her entire monetary contributions to the MTRS in
1965. The withdrawal application signed by Mrs. Hansis stated that
payments by the MTRS "shall constitute a full and complete
discharge and release of all right, interest or claim on my part to
state deposit accumulations which accrued while a member of said
FUND."

8. Mrs. Hansis joined the Wisconsin Retirement System
("WRS") as a school psychologist in 1972.

9. In 1998, DETF added 2 years of forfeited MTRS
service to Mrs. Hansis' total creditable service pursuant to the
Benson decision, supra.

Jurisdictional Facts

10. On their 1998 Wisconsin income tax return,
petitioners subtracted $71,425 from their federal adjusted gross
income. This amount represented the sum of retirement benefits
paid to Mr. Hansis ($50,448) and Mrs. Hansis ($20,977) by the WRS
in 1998.

11. Respondent issued a refund based on petitioners'
1998 return.

12. Under the date of July 1, 1999, petitioners filed
amended Wisconsin income tax returns for 1995, 1996, and 1997,
subtracting retirement benefits paid by the WRS to Mr. Hansis in
the amounts of $11,957, $41,484, and $44,967, respectively.

13. Respondent issued refunds based on the amended
returns for 1995 and 1996, but not 1997.

14. Under the date of January 10, 2000, respondent
issued an assessment reversing the refunds issued for 1995, 1996,
and 1998, and denying a refund for 1997.

15. Petitioners filed a timely petition for
redetermination that was denied by respondent. Petitioners each
filed a timely petition for review with the Commission.

APPLICABLE STATUTE

71.05 Income computation.

(1) EXEMPT AND EXCLUDABLE INCOME. There shall be
exempt from taxation under this subchapter the
following:

(a) Retirement systems. All payments received from
. . . the public employe trust fund as successor to
the Milwaukee public school teachers' annuity and
retirement fund and to the Wisconsin state teachers
retirement system, which are paid on the account of
any person who was a member of the paying or
predecessor system or fund as of December 31, 1963,
but such exemption shall not exclude from gross
income tax sheltered annuity benefits. [Emphasis
supplied.]

CONCLUSION OF LAW

The retirement benefits paid to petitioners are not
exempt from the Wisconsin income tax because they were not paid on
the accounts of persons who were members of an eligible retirement
system as of December 31, 1963.

OPINION

This case is governed by two prior Commission decisions:
Connor v. Dep't of Revenue, 1995 Wisc. Tax LEXIS 41 (WTAC 1995),
and Groschel v. Dep't of Revenue, 1996 Wisc. Tax LEXIS 34 (WTAC
1996). In Groschel, the taxpayer was a member of an eligible
retirement system on December 31, 1963, but subsequent to that date
the taxpayer withdrew his contributions to his retirement system.
Groschel, at 2. Before the taxpayer in Groschel retired, he
repurchased his forfeited years of creditable service. Id. at 3.

The Commission concluded that, while the taxpayer had
been a member of an eligible retirement system on December 31,
1963, the benefits for which he sought the tax exemption were not
paid on the taxpayer's account that existed on December 31, 1963.
Id. at 7. Upon withdrawal of the taxpayer's funds, the account no
longer contained any assets upon which retirement benefits could be
based, a fact confirmed by the taxpayer's repurchase of forfeited
service. Because nothing remained in the taxpayer's account, the
benefits he received were not "paid on the account of any person
who was a member of [an eligible fund] as of December 31, 1963."

Likewise in this case, each petitioner withdrew all of
the assets that remained in each of their accounts subsequent to
December 31, 1963. There was nothing remaining in the accounts to
which petitioners had a right.

In both Groschel and Connor, the taxpayer
repurchased
years of forfeited service. Groschel, at 2; Connor, at 4. In
these cases, the Commission held that the mere repurchase of
forfeited service did not make the taxpayer a member of an eligible
system as of December 31, 1963 (Connor, at 11) and did not
reinstate a member's credit in his retirement depository (Groschel,
at 7). In the instant case, the repurchase of petitioners'
forfeited credit does not mean that petitioners' retirement
benefits were paid on the account of a member as of December 31,
1963.

Petitioners argue that the Commission's holdings in
Connor and Groschel are inconsistent with the Wisconsin
Supreme
Court's decision in Schmidt v. Wisconsin Employe Trust Funds Board,
153 Wis. 2d 35 (1990), and the Court of Appeals' decision in Benson
v. Gates. With regard to the Schmidt decision, we cannot better
address this argument than by quoting from our Connor decision:

In 1965, the Legislature created the formula
group, members of which could receive benefits
under a defined benefit plan. Ch. 250, Laws of
1965, § 5; § 42.244-245, Stats. (1965-66). This
plan based annuities, in part, on a formula that
utilized: (1) years of creditable service, (2)
final average compensation, (3) a formula factor,
and (4) a measure of social security benefits. §
42.245(2)(b)2.a., Stats. (1965-66). This change,
for the first time, introduced to the STRS the
concept of "years of creditable service." §
42.245(1), Stats. (1965-66).

All persons who became members of the STRS
after November 30, 1965 were required to be members
of the formula group. § 42.244(1)(d), Stats.
(1965-66). Members of the combined group(1)
of the
STRS prior to that date had the option of electing
to join the formula group. § 42.244(1)(a) and (c),
Stats. (1965-66). In order to accommodate the con-version of combined group members into
the formula
group, the statute had to allow for the conversion
of years of service prior to the effective date of
the formula group into years of creditable service.
Thus, § 42.245(1)(a), Stats. (1965-66), provided
that the "creditable service of each member any
time prior to July 1, 1966, shall be the number of
years of service as a teacher in Wisconsin teaching
(including prior service) . . . ." However, §
42.245(1)(c), Stats. (1965-66), provided that
"[c]reditable service for Wisconsin teaching prior
to the effective date of this paragraph shall be
reduced by the one-half of any period included
therein with respect to which the required deposits
of a member have been withdrawn . . . "

The plaintiff in the Schmidt case was a
teacher and member of the STRS from 1957 until
1963, when he left public employment and withdrew
his member's deposit. Schmidt, 153 Wis. 2d at 37-38. In the course of his
withdrawal, the plaintiff
signed a waiver of his rights to the state deposit
accumulation much the same as Mr. Connor had. Id.
at 38. The plaintiff returned to public employment
in 1964, and, after the enactment of Chapter 250 of
the Laws of 1965, he opted to join the formula
group. Id. at 38-39.

The Wisconsin Supreme Court held that, while
the plaintiff had waived his right to money which
accumulated in his retirement fund through state
deposits, the plain language of § 42.245(1)(a) and
(c), Stats., grants creditable service to the
plaintiff, notwithstanding the withdrawal of his
members accumulation. Id. at 46, 49.

In Connor, we pointed out that the enactment of section
42.245 of the 1965-66 Statutes merely granted to the taxpayer
credit under the formula group for his prior service in the STRS.
Connor, at 14. It did not reinstate his credit in the STRS
depository. In fact, the Supreme Court in Schmidt held that the
statute did not reinstate any right to state money the taxpayer
forfeited when he withdrew his accumulation. Schmidt, 153 Wis. 2d
at 49.

Here, each petitioner was able to receive a benefit based
on section 38.24(7a) of the 1965-66 Statutes, which has been
construed to have the same effect as section 42.245. The enactment
of this statute did not reinstate their forfeited retirement
accumulations. Thus, the Commission's decisions in Connor and
Groschel are not inconsistent with the holding in Schmidt.

The Benson decision is likewise of no assistance to
petitioners. Benson merely dealt with the statute of limitations
for persons challenging the denial of their creditable service
granted under section 42.245. Prior to Benson, DETF determined
that the statute of limitations for claiming the benefits granted
by section 42.245 was when the beneficiary first has notice that
DETF has failed to grant such credit. The Court of Appeals held
that the statute of limitations commences on the date DETF
calculates and pays retirement benefits to the beneficiary.
Benson, 188 Wis. 2d at 405. As in Connor, the
Benson holding does
not affect the taxability of petitioners' retirement benefits.

Finally, petitioners rely on two of respondent's Tax
Bulletins to buttress their position. In Tax Bulletins 76 and 98,
respondent took the position that retirement benefits would be
exempt if paid to persons who withdrew their retirement
accumulations from the STRS prior to January 1, 1964 and later
became members of the STRS. (In Tax Bulletin 118, respondent
revoked these tax releases following the Commission's decisions in
Connor and Groschel.)

The mere fact that respondent incorrectly construed the
law does not assist petitioners. Rather, in order for respondent
to be bound by the faulty advice it provided, three elements must
be shown: (1) action/non-action by respondent (2) that induces
reasonable reliance by the taxpayer (3) to the taxpayer's
detriment. Department of Revenue v. Moebius Printing Co., 89 Wis.
2d 610, 634 (1979). The second element is clearly not available in
this case. The advice in both releases referred to members of the
STRS who withdrew their retirement accumulations prior to January
1, 1964. Neither petitioner was a member of the STRS when they
withdrew their retirement accumulations, and each withdrawal was
after January 1, 1964.

ORDER

Respondent's action on the petition for redetermination
is affirmed.

Dated at Madison, Wisconsin, this 14th day of June, 2001.

WISCONSIN TAX APPEALS
COMMISSION

Mark E. Musolf, Chairperson

Don M. Millis, Commissioner

Thomas M. Boykoff, Commissioner

ATTACHMENT: "NOTICE OF APPEAL INFORMATION"

1 Certain members of certain retirement systems
prior to the creation of the formula group were
members of the combined group.